Zimbabwe's manufacturing industry continues to slump mainly owing to the failure by companies to cope up with the hyper-inflationary economic environment and the government's lack of consistency in policy implementation.

According to the latest statistics from the Central Statistics Office (CSO), many constraints especially foreign currency shortages have forced companies to fail to acquire required imported inputs resulting in capacity utilisation in many industries falling to below 20 percent in 2007 from 30 percent in 2006 and 50 percent in 2004.

Meanwhile, Government remains mum on its position or any proposals to arrest the slow death and resuscitation of the manufacturing sector.

A report by a local bank on the Overview of the Manufacturing Sector in Zimbabwe indicate the government-sanctioned price cuts in June last year worsened the difficult operating conditions in the economy in general and the manufacturing sector in particular as this severely squeezed profit margins.

"Price controls have seen production costs rising at a rate that is more than revenue generation. A lot of firms are also pursuing mergers and buy-outs so as to stay in business," cites the report.

Last year, companies such as Edgars and Innscor's subsidiaries of Bakers Inn and Chicken Inn were forced to shed-off some branches and retrench workers. Many manufacturing firms resorted to putting workers on forced leave as they scaled down operations.

Recent statistics also reveal total export shipments for the sector fell by 13 percent during the first eight months of 2007 to US$174.26 million up from US$200.73 million during the same period in 2006.

According to the Confederation of Zimbabwe Industries (CZI), GDP has been on the decline since 1999 whilst investment levels declined from 140 percent in 2004 to 78 in 2005.

A total of 73 percent of the local manufacturing industry was strongly affected by the unconducive operational environment. Only 3.6 percent of manufacturing firms (clothing) operated at full capacity whilst 65 percent performed below inflation.

Among the obstacles cited by companies included foreign currency, fuel, raw material and persistent power cuts.

"Although agriculture production is expected to fall further in 2008 due to the current incessant rains and should therefore weigh down the manufacturing sector which is agro-driven, the cheap credit facilities should cushion the sector."

"As a result, we see the manufacturing sector improving from a negative growth of 16 percent in 2007 to a negative growth of 10 percent in 2008," says the latest report.

Economic Consultant, John Robertson, indicated in 2005, factory output had slumped 45.6 percent since 1998. Manufacturing levels had dropped to the lowest since at least 1971.

By mid-2005, the manufacturing sector had declined by 35 percent from the 2004’s figure. Based on the Central Statistical Office (CSO) figures, volumes of manufactured output peaked at 108 percent in 1996 and have trended downward ever since, with accelerated decline being recorded in 2000 whilst in 2003, output declined by 11,8 percent.

In the past years, the CZI has been calling on the government to start adopting a free and consistent economic policy regime to boost confidence, foreign earnings and output volumes.

"Furthermore, the harmonization of elections starting in March 2008 and the positive talks between the ruling ZANU PF and opposition MDC should work towards the reduction of political tensions in the country all which are crucial in the improvement of investor confidence," concludes the report.

The Government has made some interventions to improve production supply through the introduction of the necessary support measures. These include the Basic Commodities Supply-Side Intervention Facility (BACOSSI) through the RBZ.

BACOSSI offers concessionary loans at 25 percent per annum for productive activities, as well as foreign exchange to kick start domestic production of goods.

The facility was launched on the 1st of October 2007 with the aim of availing cheaper credit to producers and suppliers of basic commodities so as to make products available to consumers at affordable but economically viable prices.

A number of companies are reported to be taking advantage of the facility to improve their production levels. Targeted companies have been able to import the necessary raw materials and intermediate inputs from the improved access to foreign exchange.

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